Imagine paying somebody to take your money. To you and me, such a concept may seem unreasonable.
But to a growing number of retailers making money from your debit card, this makes sense—lots of cents.
And it is happening only because of a legal loophole.
Here’s what is occurring: Retailers statewide are increasingly adding on “checkout” fees when consumers use their debit cards to make purchases. Put another way, consumers are paying millions, on top of the price of the goods they’re buying, simply so the retailer will accept an electronic money transfer.
Current California law prohibits merchants from applying checkout fees to credit card purchases. But the law is silent on debit cards, allowing merchants to bill debit-card users an additional fee set by the retailers.
To halt these debit-card surcharges, I authored Senate Bill 933.
The issue is simple fairness. A basic rule of good business is that the price on a store window for a carton of milk, or the cost of gas on the sign in front of a service station, should be the price we pay when checking out.
Instead, consumers find themselves paying, say, $3.50 or more at checkout for a gallon of milk that was advertised at $3, simply for using their debit card. Or $3.25 for a gallon of gas advertised at $3.02. Such debit-card surcharges can spike prices by 20 or 30 percent and, again, are set by retailers without any limits.
As consumers increasingly use debit cards more than cash, check, or credit cards—checkout fees add up to big dollars in a short time.
Consider how debit-card fees are hitting the most vulnerable among us:
• The U.S. Department of the Treasury distributes Social Security benefits through what it calls a Direct Express debit card.
• The state Department of Employment may soon issue unemployment checks via debit card.
• A similar change is pending for state residents receiving disability payments.
The bottom line: It’s outrageous to allow retailers to impose extra fees on those who are unemployed, or on disability, or are senior citizens simply because they use debit cards.
The underlying issue is fairness. The way debit-card payments work, retailers pay a fee that covers the costs of processing an electronic transaction between the various financial institutions and card networks.
While it is understandable that retailers want to minimize their business costs, the U.S. Senate recently approved legislation that for the first time requires these interchange fees to be “reasonable and proportional” to the processing costs incurred.
That may help retailers reduce their costs, but it does nothing to protect Californians from added on checkout fees.
The fact is, it makes good business sense for retailers to accept debit cards, but they should do so in the same way they handle credit cards—without additional fees.
A May 14, 2010 study by The New America Foundation found, “a host of benefits gained by merchants from accepting bank cards—including increase in total sales—makes bank cards a profitable enterprise for merchants.”
In other words, retailers accept debit cards because it is a profitable business practice yet many shamelessly still charge consumers.
As it now stands, retailer-imposed checkout fees on top of advertised sticker prices is costing consumers hundreds of millions of dollars. According to New America, debit-card surcharges “amount to a needless transfer of income from consumers to retailers that are already covering their costs related to bank card acceptance without a surcharge.”
This is hitting lower-income families the hardest, especially those using government-issued cards.
Many business and consumer groups agree retailer checkout fees are unfair. Supporting SB 933 are the California chapters of the AARP, Consumers Union, Consumer Federation of California, Consumer Action, National Employment Law Project, Center for Responsible Lending, and several local chambers of commerce.
At a time when California working families already face tough challenges making ends meet, they shouldn’t bear penalties for simply how they choose to pay. Fair is fair, whether it’s by cash, check, credit or debit card.